DF Rendimento 201712 eng-US

[Pages:40]Financial Statements Banco Rendimento S/A

December 31, 2017 and 2016

Including the Independent Auditors' Report on the Financial Statements

Financial Statements Banco Rendimento S/A December 31, 2017 and 2016

Contents

Management's Report..........................................................................................................................................1 Independent Auditors' Report on the Financial Statements ...............................................................3 Audited Financial Statements Balance Sheets.........................................................................................................................................................6 Income Statements................................................................................................................................................8 Statement of Changes in Shareholders' Equity..........................................................................................9 Cash Flow Statements ....................................................................................................................................... 10 Explanatory notes to the financial statements ....................................................................................... 11

Management's Report

Pursuant to applicable legislation and company bylaws, we submit for your appreciation the balance sheet, statements of income, changes in shareholders' equity, and changes in cash flow for the fiscal years ended December 31, 2017 and 2016.

The institution

Banco Rendimento is focused on financial and travel foreign-exchange transactions. It is one of the main suppliers of currency in the market, importing and exporting many currencies including the pound sterling, US dollar, and euro. It offers its clients services such as international transfers to and from Brazil, remittals, opening current accounts in foreign currencies, and prepaid cards for local and international use. Banco Rendimento is a commercial bank offering credit services for middle-market businesses, including loans and discounts, sureties, BNDES onlending, and foreign-trade transactions.

Economic scenario

As 2017 closed, the macroeconomic backdrop was better than expected both domestically and internationally. Economic indicators of major countries have followed a favorable trajectory as worldwide activity has been bouncing back without excessively pressuring financial conditions of the more advanced nations. While this behavior signals a continued expansion of economic activity in 2018, it also demands authorities to be more watchful of prices and risks associated with possible inflation.

In the United States, the Federal Reserve raised the key interest rate three times in 2017, from 0.75 to 1.5 percent a year. Economic indicators suggest that the pace of growth gained momentum, driven by international trade, inventories, and household consumption, which benefited from an upswing in the job market and a strengthening stock market. The tax cut Congress approved in December will help drive economic activity leading to a forecast 2.3 to 2.5 percent GDP growth in 2018. A benign current inflation has enabled monetary conditions to return gradually to normal. We expect the Fed to raise the prime interest rate another three times, to 2.25 percent at yearend.

Meanwhile, the Euro Zone has maintained its expansionary fiscal and monetary policies. The European Central Bank will end its asset-purchasing program in September; the interest rate hike is expected to happen only in late 2018 or in 2019, depending on the risk of inflation, which remains low. Economic indicators suggest growth of about 2.5 percent in 2018, as the job market improves, confidence remains high, and monetary policy is extremely accommodative.

Brazil, in turn, emerged from a recession that started in the second quarter of 2014, lasting 11 quarters and bringing down the country's GDP by 8.6 percent. According to the Economic Cycle Dating Committee, this was one of the longest and deepest recessions of the past decades. Among key factors that helped improve the economy were a stronger global growth, solid harvest expansion, loosening monetary policy, and consumer stimulus initiatives (the withdrawal of FGTS). We forecast Brazilian GDP to grow by 1 percent in 2017 and 2.7 percent in 2018, driven the higher household spending, which in turn is boosted by a larger wage mass, falling inflation and interest rates, friendlier credit conditions, and

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Management's Report

improved employment. Higher investment will also help expand domestic growth, while government consumption will make a smaller contribution.

As part of its monetary policy, the Central Bank of Brazil (Bacen) maintained a loosening policy under which the year closed with the Selic benchmark rate at 7 percent per annum. The Bacen reaffirmed that its monetary policy is flexible enough to react to risks on both sides. On the one hand, there are the risks that the secondary effects of supply shocks and current low inflation result in inflation below target. On the other hand, there is the risk of a setback in the international arena, as expectations for the necessary reforms and adjustments are frustrated. Inflation closed the year at 2.95 percent, according to the IPCA rate. This is the lowest figure since 1998 and falls below the inflation target. While the cost of food fell by 4.85 percent in the year, the housing, healthcare, and transportation group had a considerable increase. We forecast a 2018 IPCA inflation rate at 3.96 percent. We also expect the Bacen to increase the Selic rate by 0.25 percent in the second quarter, as the economy bounces back and exerts pressure on fuel and energy prices. This would result in the Selic rate ending the year in 7 percent per annum.

Looking outwards, Brazil closed 2017 with a current-account deficit of $9.7 billion, the lowest in 10 years. A positive trade balance mitigated the impact of negative results in the services and income account. The trade balance enjoyed a $64 billion surplus; exports totaled $217.2 billion and imports, $153.2 billion. Foreign direct investment has been positive and closed 2017 at $70.33 billion. Brazilians traveling abroad spent $19 billion in 2017, while foreigners coming to Brazil spent $5.8 billion. As a result of these expenses and revenues, the international travel account balance closed the first five months of the year negative in $13.2 billion. Our forecast for the 2018 international travel account is for a $17.3 billion deficit. Foreign direct investment in Brazil should total $80 billion. The current account is expected to have a $28 billion deficit, while the trade balance should have a $54 billion surplus.

In 2018, the Brazilian currency, real, may benefit from considerable internationally liquidity and an appetite for Brazilian assets, offset by monetary policy in developed markets coming back to normal and the political scenario in Brazil. We expect the Brazilian real to have a volatile year and close 2018 at R$3.35 for $1.

In the political arena, the government failed to approve the social security reform and postponed it to February. This can fuel political instability in a year that also has presidential elections. Party coalitions have been banned and no candidates have been defined so far, leading to unclear forecasts of a winner. The uncertainty regarding the capacity of a new administration tackling the strong fiscal unbalance is one of the major risks that lie ahead of us.

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Management's Report

Basel Index

Minimum requirements for the Tier I and Capital Reference Net Worth (PR) are determined based on the Prudential Conglomerate and on Resolution no. 4193/13. In the second half of 2017, more specifically in December, the Basel Index recorded an unusual drop, especially considering its time series. This was triggered by an increase in the volume of foreignexchange transactions and a larger credit portfolio, which in turn impacted the positions of Risk-Weighted Assets (RWA) and the respective foreign-exchange and credit exposures.

Regarding prudential adjustments, the tax credits we used allowed us to make the highest Tier I capital deductions, which were offset by a net profit of R$49.426 million in the period. Weighted assets increased to R$2,270,777,000 (1,621,920,000 in December 2016).

270.000 260.000 250.000 240.000 230.000 220.000 210.000 200.000 190.000

12,20%

14,38%

221.619

233.212

14,65% 246.263

11,70% 265.634

Jun/16

Dec/16

Jun/17

Dec/17

Capital Reference Net Worth (PR)

Basel Index

15,00% 14,00% 13,00% 12,00% 11,00% 10,00% 9,00% 8,00%

Corporate governance, risks, and internal controls

Banco Rendimento's corporate governance structure is based on ethics, transparency, and respectful engagement with shareholders, employees, clients, and partners. It complies with laws, external regulations, policies, standards, internal procedures, and codes of conduct and ethics. It relies on technology and processes that are designed and controlled by specialists aligned with the organization's strategic objectives.

This structure is designed to mitigate market, operational, liquidity, credit, social, and environmental risks. It comprises the Compliance, Information Security, Risk Management, Internal Controls, Internal Audit, and Money Laundering Prevention control and Fighting of Terrorism Financing areas. Corporate governance is aligned to best market practices and uses measuring and control tools that are compatible with, proportional to, and suitable for the operational needs and complexities and businesses of the organization.

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Management's Report Following the segmentation and integrated risk management model defined by the Central Bank of Brazil (Bacen) under CMN Resolutions no. 4553/17 and 4557/17, we will work suing combined structures, models, and policies to ensure rational and effective controls. We will also adopt a prospective stance and culture regarding the management of risks and capital using effective governance models, business continuity, and internal controls, all in accordance with the business profile and risk appetite of the Prudential Conglomerate subsidiaries. Independent auditors Ernst & Young Auditores Independentes S.S. is the independent auditor engaged to review the financial statements of Banco Rendimento S/A. The policy adopted complies with the principles that preserve the independence of the auditor, in accordance with internationally accepted criteria. Acknowledgements The management of Banco Rendimento would like to thank its clients and partners for their trust and its employees as well. The Management

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S?o Paulo Corporate Towers Presidente Juscelino Kubitschek, 1909 Vila Nova Concei??o 04543-011, S?o Paulo, SP, Brazil Tel: +55 11 2573-3000 .br

Independent Auditors' Report on the Financial Statements

To The stockholders and management of Banco Rendimento S.A.

Opinion

We have examined the accompanying financial statements of Banco Rendimento S.A. (the "Bank"), which include the balance sheet as of December 31, 2017 and the related statements of income, changes in stockholders' equity, and changes in cash flow for fiscal year then ended, as well as the corresponding explanatory notes, including a summary of main accounting practices.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Banco Rendimento S.A. as of December 31, 2017, the results of its operations, the changes in stockholders equity, and the respective changes in its cash flow for the fiscal year then ended in conformity with Brazilian accounting practices applicable to financial institutions licensed by the Central Bank of Brazil.

Basis for an opinion

Our audit was conducted based on Brazilian and international audit regulations. Accordingly, our responsibilities are described in the section called "Auditors' responsibilities for the audit of the financial statements." We are independent in relation to the Bank, in accordance with the ethical principles contained in the Accountant Code of Professional Ethics and in the professional regulations issued by the Federal Accounting Board, and we follow all other ethical responsibilities based on these regulations. We believe that the evidence this audit has secured is sufficient and suitable to base our opinion.

Other information accompanying the financial statements and the auditors' report

The Management of the Bank is responsible for any other information contained in the management report. Our opinion of the financial statements does not include the management report and we refrain from expressing any audit conclusion regarding that report.

In connection with the auditing of the financial statements, our responsibility is to read the management report and, in doing so, consider whether that report is materially consistent with the financial statements or with the knowledge we have obtained through the audit or which otherwise seems to be materially

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A company member of Ernst & Young Global Limited

distorted. If, based on the audit performed, we conclude there is a material misstatement in the management report, we are required to report this fact. We have nothing to report in this regard.

Responsibilities of the management and of the governance for the financial statements

The management is responsible for preparing and properly presenting these financial statements in accordance with Brazilian accounting practices applicable to financial institutions licensed by the Central Bank of Brazil as well as for the internal controls the Bank's management has judged necessary to enable the preparation of financial statements free of any material misstatements, whether caused by fraud or by error.

In preparing the financial statements, the management is responsible for assessing the Bank's capacity to continue operating, reporting, when applicable, the matters related to its operating continuity and the use of this accounting base in preparing the financial statements, unless the management decides to liquidate the Bank or cease its operations, or has no realistic alternative to avoid shutting down its operations.

Those responsible for governance are those responsible for supervising the preparation of the financial statements.

The responsibilities of the auditor for the financial statements

Our objectives are to be reasonably confident that the financial statements, in their entirety, are free of any material misstatements, regardless of them being caused by fraud or error, and issue an audit report with our opinion. Reasonable confidence is a high level of confidence, but not a guarantee that the audit performed in accordance with Brazilian and international audit rules will always detect any existing material misstatements. Such misstatements can be the result of fraud or error and are considered material when, individually or combined, they can influence, within a reasonable perspective, the economic decisions of the users taken based on these financial statements.

Our audit was conducted based on Brazilian and international audit regulations. In performing this audit we exercised professional judgement and maintained professional skepticism throughout the audit. Additionally:

? We have identified and assessed the risks of material misstatements in the financial statements, regardless of whether they were caused by fraud or error; planned and executed audit procedures in response to such risks; and secured appropriate and sufficient audit evidence to base our opinion. The risk of not detecting material misstatements resulting from fraud is greater than that originating from

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